ORLANDO, FL—The New American Home, the centerpiece of the National Association of Home Builders annual convention, died on the vine at last year’s show in Las Vegas because the construction lender pulled out midway through the project.
That didn’t happen this year, not because construction financing is flowing again, but because the buyers already owned the three lots on which the gargantuan 9,700-square-foot showstopper (8,500 under roof) sits. If anything, builders complain, it’s even harder to obtain than it was a year ago.
“We had a number of builders who wanted to build the New American Home but they couldn’t get funding,” said building industry consultant William Nolan, vice chairman of the New American Home Task Force. “The only reason it got built at all is because we already had a buyer.” And so it is that the inability to obtain and hold on to financing to buy land, turn it into building lots and build houses has become the single most important issue facing the nation’s home builders. Even more so than the possibility that the cherished tax write-off for mortgage interest could be sharply limited or even terminated.
It’s not that the mortgage interest deduction isn’t important. It is, according to builders, who argue that if their buyers can’t claim the interest they pay on their home loans, far fewer will qualify for financing.
But the sacrosanct write-off is put on the table every year by the Joint Committee on Taxation, which reminds lawmakers what it “costs” the government in lost income. And just as sure as it appears in the committee’s annual report, it is swept off the table, never to be mentioned again—until the following year.
This year, though, the deduction was the lynchpin of the final report by President Obama’s National Commission on Fiscal Responsibility and Reform, which, among other things, suggested the benefit be whittled down from $1 million to a mere $500,000. And the proposal doesn’t seem to be going away, at least not if the collective housing lobby has anything to say about it.
But you can’t sell houses that you can’t build, so it doesn’t matter whether the write-off isn’t retained or not if builders can’t get the money they need to acquire ground, develop it and erect houses.
The inability to secure acquisition, development and construction financing comes around as a major issue every so many years, too. Not as regularly as the interest deduction, perhaps, but every time interest rates skyrocket or lenders pull in their horns, builders cry foul.
This time around, though, “it’s the worst it’s ever been,” according to David Ledford, senior vice president for housing finance and land development at the NAHB, which met here last week at its annual conclave. And the group’s members are once again bellowing their lungs out. Not just to their congressmen, either, but also to the NAHB staff.
“Our members feel we should be solving the problem and we haven’t done it,” said Ledford, who has been feeling the wrath of angry builders who live or die on their ability to obtain financing and want to know why something isn’t being done about it.
Construction financing isn’t an issue for high-production builders. For the most part, the big publicly traded industry giants, which stamp out hundreds, if not thousands, of houses every year, get their funding from the capital markets. But it is “a big deal” for the small- and medium-size builders who tend to rely on local community banks for their money and make up the majority of the NAHB membership.
And it’s not just about no longer qualifying for financing on otherwise viable projects. It’s also about hanging on to loans they already have, according to numerous builders, who say lenders are unnecessarily calling loans due and forcing them into foreclosure.
